Lehman could have been saved if Fed allowed: Fuld

After nearly seven years of public silence, Richard S Fuld Jr, the former chief executive of Lehman Brothers, had a lot to say.

Fuld, vilified during the crisis, was unapologetic in his first public appearance since, suggesting that Lehman could have survived if the Federal Reserve had allowed it to, and deflecting blame to policy makers.

In a rambling speech at the Marcum MicroCap Conference at the Grand Hyatt New York, Fuld avoided any mention of investment banks’ eagerness to issue sub-prime mortgages. (Lehman had an enormous portfolio of sub-prime loans.)

“It’s not just one single thing,” Fuld said. “It’s all these things taken together. I refer to it as the perfect storm.”

At the root of the crisis, in his view, was the government’s push for homeownership. At the same time, hedge funds, private equity firms and sovereign wealth firms grew rapidly. “There was very little regulation or market supervision,” Fuld said.

Then in 2007, the Fed raised interest rates, essentially ending the housing boom it had encouraged. “The increased rates led to increased mortgage rates and payments, a huge number of residential foreclosures,” he said. “Banks wrote down and sold assets.”

Fuld said the current economy is not as healthy as it appears. “Why the hell does it not feel better?” he asked.

Part of the problem is that small companies cannot obtain financing, he said. While banks have record lending capacity, they are not making it available. Corporations are cutting expenses and jobs but not increasing revenues rapidly.

Global instability also poses challenges. The rise of the Islamic State, China’s aggressiveness in the South China Sea, Russia’s assertiveness and Iran’s nuclear ambitions all made Fuld’s list of worries.

“Taken together, they are fraying the fabric of our system,” he said.